Defective Workmanship can now be an “Occurrence” under Commercial General Liability Policies in West Virginia
Thursday, 15 August 2013 08:34
By Gina Helou
In this case, an individual entered into a contract with a general contractor to build a home in West Virginia. The general contractor hired a subcontractor, who, ultimately, performed the majority of the work under the contract. The general contractor had a CGL policy in effect during the construction process. The CGL policy offered coverage for “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which [the] insurance applies,” but only where the “bodily injury” or “property damage” was “caused by an ‘occurrence.’” The policy further defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Once construction of the West Viginian home was completed, the homeowner noticed a litany of deficiencies in the final product. The homeowner alleged the roof leaked, the support beams sagged, the concrete foundation was laid unevenly, and that there were multiple cracks in the drywall throughout the home. The homeowner sued the general contractor and subcontractor for its poor workmanship claiming it was negligent in the construction of the house. The general contractor requested that its CGL insurer provide coverage and defense against the homeowner’s claim. The insurance company refused to provide coverage, so the contractor filed a separate complaint against the insurance company, seeking a declaration of insurance coverage.
The trial court ruled in favor of the insurance company and stated that the homeowner had failed to establish that an “occurrence” or “accident” had caused the alleged damages because faulty workmanship, in and of itself, or absent a separate event, is not sufficient to fall under the definition of “occurrence.” The general contractor appealed.
The West Virginia Supreme Court of Appeals disagreed with the trial court. The Court of Appeals held that defective workmanship is, in fact, included within the definition of an “occurrence” under a CGL policy. In reaching this conclusion, the Court of Appeals reasoned that an “occurrence” was defined as an “accident” under the specific CGL policy, but the term “accident” was not so defined, so the Court looked to its prior cases to define an “accident.” The Court of Appeals found that for circumstances to give rise to an “accident,” it must not have been “deliberate, intentional, expected, desired, or foreseen.” Guided by this definition, the Court of Appeals stated that “[i]t goes without saying that the damages incurred…during the construction…were not within the contemplation of [the general contractor] when it hired the [subcontractor] alleged to have performed most of the defective work. Additionally, the Court of Appeals stated that “[n]or can it be said that [the general contractor] deliberately intended or even desired the deleterious consequences that were occasioned by its [subcontractor’s] substandard craftsmanship.” Therefore, the Court of Appeals concluded that the subcontractor’s alleged defective workmanship would be an “occurrence” that would trigger CGL coverage.
Faulty construction or workmanship can now be a covered “occurrence” in West Virginia. Contractors in West Virginia can breathe a little easier with the expanded coverage now that the State has become the latest to adopt the rule of the majority of States ruling on the matter. Contractors still must be wary, however, of certain coverage exclusion provisions and potential choice-of-law provisions in their contracts that could, for instance, apply the law of one of the minority states that are “no-coverage states” for defective workmanship.